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April 23, 2013

The CFPB Warning on Senior Designations: Off the Mark

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You may have seen Melanie Waddell’s April 18 story on AdvisorOne about the Consumer Financial Protection Bureau’s report detailing its concerns about the myriad “confusing” designations for advisors who work with seniors. Given the Report’s title, “Senior Designations for Financial Advisers: Reducing Consumer Confusion and Risks,” the CFPB is more than a little concerned. Yet its list of remedies is more notable for its omissions than for what it includes—which should be cause for concern by seniors themselves and by professional advisors who serve them.

The Bureau cited more than 50 such designations and listed three major concerns: “The names and acronyms of senior designations confuse consumers; there is a wide variety of required training, qualifying exams and oversight associated with different designations; and there is a lack of comprehensive supervision and enforcement.” It’s hard to take issue with any of these specific complaints. Yet it’s a list that raises way more questions than it answers.

For the moment, let’s set aside the question of why, out of all the challenges facing financial consumers today, the Bureau decided to focus on this one. Seniors certainly are a huge and growing demographic, and I think we can all agree, are all too easily—and often—taken advantage of. So let’s let that pass.

It does seem fair to wonder whether the admittedly confusing keypad of “senior advisor” designations is really the most pressing challenge that senior investors face. Not the ridiculously high fees charged by many 401(k)s, IRAs and annuities? Nor the myriad of “nontraditional” investment products with questionable financial potential, inordinate risk and even higher loads? Or the onslaught of downright investment frauds that perennially prey on the elderly? A more skeptical mind might conclude that the CFPB’s assault on “senior designations” amounts to nothing more than punting on these more politically risky issues.

Finally, there’s the Bureau’s focus on these three specific issues; are confusion, lack of training and adequate supervision really the problem with the financial advice that seniors get?

For that matter, don’t these three issues also plague most retail investors who seek financial advice today? Why has the CFPB chosen to separate out seniors from the rest of the herd?

We get some insight into this conundrum when we look at the three remedies that the Bureau’s Report offers for the plight of seniors seeking investment advice: “Implement rigorous training standards; set strict standards; and increase supervision and enforcement. Again, hard to argue with, as far as they go. But the bureaucratic bug in this ointment lies in the description of those “strict’ standards: “Such standards could include prohibiting senior designees from characterizing sales events as educational seminars, and selling financial products and services at events that are advertised or described as educational or informational events.”

That’s right: while the entire financial services industry and its regulators are embroiled in the debate over how to expand a fiduciary standard to cover all financial consumers, the CFPB is worried about misleading seminars for seniors! This isn’t a case of punting; rather, it’s not showing up for the game. Apparently, the idea that requiring advisors to the elderly to first and foremost put the interests of their clients first didn’t occur to the Bureau. What could be a more important protection for those most vulnerable of investors? Kind of makes you wonder what the “P” in CFPB really stands for, doesn’t it?